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IAI Actuarial Core Principles · Business Economics · Main economic schools and their key features

Which of the following is a feature of the neoclassical approach that distinguishes it from the classical school's treatment of value?

Neoclassical economists explain value through subjective marginal utility and scarcity, with demand and supply jointly setting price, whereas classical writers stressed the labour or cost of production embodied in goods. This marginal shift is the defining break from classical value theory.

  1. AValue is determined mainly by the quantity of labour embodied in production
  2. BValue is determined by subjective marginal utility and relative scarcity, combined with costs, rather than labour content aloneCorrect
  3. CValue is fixed by the state through planning
  4. DValue depends only on the money supply
  5. Value reflects historic social class struggle

Explanation

Classical writers, especially Ricardo and Marx, leaned on labour or cost of production theories of value. Neoclassicals in the 1870s shifted to subjective marginal utility and scarcity, with demand and supply together fixing price. The other options describe planning, monetarism or Marxian class analysis.

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